Paul Krugman is right

At first I was skeptical of this assertion by Paul Krugman:

What we observe is that private insurers spend a much larger fraction of their receipts on administration than Medicare does. . . . I know that some people find that answer unacceptable: they know that the private sector is always more efficient than the government, and no amount of evidence will shake their faith. But that’s what the evidence shows.

I admit it.  I was one of those people who thought Fedex and UPS were more efficient that the Postal Service.  I couldn’t believe that government bureaucrats could manage a giant health “insurance” company more efficiently than the private sector.  After reading this, however, I’ve become convinced that Krugman is right.  The Feds really do spend less on administration:

MIAMI (AP) — Federal authorities charged more than 100 doctors, nurses and physical therapists in nine cities with Medicare fraud Thursday, part of a massive nationwide bust that snared more suspects than any other in history.

More than 700 law enforcement agents fanned out to arrest 111 people accused of illegally billing Medicare more than $225 million. The arrests are the latest in a string of major busts in the past two years as authorities have struggled to pare the fraud that’s believed to cost the government between $60 billion and $90 billion each year.

It’s not easy to misplace $60 to $90 billion.  That kind of money doesn’t just slip behind the couch cushions.  You’ve got to seriously cut staff in cost control to achieve that sort of outcome.  Imagine what they could accomplish if we let that same Medicare administration manage 16% of GDP.  That’s more than Canada’s entire GDP.  I bet they’d achieve even further administrative savings.

Before all you Republicans start gloating, consider the following.  The raid took place under the Obama administration, not Bush.  The Republicans oppose cuts in Medicare and Social Security.  The Republicans oppose cuts in the military.  The Republicans oppose cuts in interest on the debt.  That leaves discretionary spending, stuff like federal farm subsidies, which are a small part of the federal government.  Fortunately, with food prices at record heights and farm income soaring, the GOP will finally start cutting crop subsidies.

Oh wait . . .

Attention Tea Party members; once again you’ve been suckered by the “small government” rhetoric of the GOP establishment.  If you sincerely want small government, and not just benefit cuts to people with brown faces, then here’s your man for 2012.


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37 Responses to “Paul Krugman is right”

  1. Gravatar of marcus nunes marcus nunes
    17. February 2011 at 12:37

    Scott
    If the description is even 80% truthful, Yes, he´s the man!

  2. Gravatar of Contemplationist Contemplationist
    17. February 2011 at 13:01

    Yeah man lets abolish ALL administrative costs! Who cares for a few tens of billions in Medicare fraud?

  3. Gravatar of John John
    17. February 2011 at 13:09

    Two points. First, do you believe Canadian Medicare is that wasteful? (Just a question I don’t find the answer obvious).

    Second, I’m not saying I’m for single-payer (I like Singapore’s system a lot), but since as far as I can tell the current waste-level of health care spending is in the 35% ballpark (because we use 15% of GDP but get similar outcomes to countries that spend less than 10%). If 16-23% of Medicare spending is fraudulent as you suggest (I’m using 2008’s $386b as the denominator), that actually compares quite favorably against our current level of waste, and also presents a painless target in terms of cutting the budget deficit.

    My feeling on the whole health care thing is that everybody likes to get snarky about other people’s proposals, but really pretty much anything would be an improvement on what we’ve got.

  4. Gravatar of John John
    17. February 2011 at 13:12

    To explain my logic above a bit better, I should say that my assumption is that we adopt another country’s (say Canada’s) health policy wholesale, with all the changes in consumption that come with it, but assuming that 16-23% waste would be added on top).

  5. Gravatar of gnikivar gnikivar
    17. February 2011 at 13:51

    I like Johnson on a few things, but he seems to believe a lot of the non-sense about monetary policy coming from the right. Normally not a big deal in my opinion, but right now isn’t normal times. An attack on the fed could kill what recovery we have.

  6. Gravatar of Ray Lehmann Ray Lehmann
    17. February 2011 at 13:55

    Private insurers certainly spend proportionately more on fraud detection and prevention that Medicare has, and you’re right to point to that as a difference in administrative costs. But the single biggest difference is that Medicare really doesn’t have to spend ANYTHING on marketing. Every American qualifies for Medicare at age 65, and Medicare does not need to pay agent commissions or buy TV ads to sway consumers to join their service rather than someone else’s.

  7. Gravatar of Scott Sumner Scott Sumner
    17. February 2011 at 14:48

    Marcus, He’s my favorite.

    Contemplationist. I agree.

    John, I think Canada’s Medicare is probably much better than ours. Probably because we have 300 million people and they have 33 million. It’s much easier to mange small programs.

    I agree with all the rest of your comments.

    gnikivar. Well, no one’s perfect. My reading of monetary history is that the Fed usually doesn’t make the same mistake twice in a row. They’ll learn from this and put in place a better system at some point. I’m much more worried about fiscal issues over the next 100 years.

    Ray, I agree, and just to be clear I also oppose “private insurance,” which I don’t believe is private at all. It’s massively subsidized by our tax system.

  8. Gravatar of Bababooey Bababooey
    17. February 2011 at 14:56

    We don’t have a Tea Party GOP, we have a GOP under incipient assault from a Tea Party. The GOP currently outvotes the invaders and your premature jab about co-opt may prove correct, but c’mon, let us still hope for change in the coming election cycles. (An aside, Saul Alinsky’s Rules for Radicals is a fun read and offers a good way to look at these things.)

    TPeeps showed some gumption when they embarrassed the GOP leadership on the PATRIOT special vote and in holding their feet to the fire on the $100b pledge. Your link on agriculture is just some GOP “study” group, not an actual committee or floor vote, so, again, there’s hope…

  9. Gravatar of woupiestek woupiestek
    17. February 2011 at 14:57

    This is how the Netherlands are liberal in drugs. Supplying coffee shops with drugs is illegal, but the police doesn’t have the budget or the people to fight against it. And we are supposed to be proud of this arrangement. It is one of many examples where the government spends less money by hiring too few too lowly qualified people to do its job.

  10. Gravatar of Jeff Singer Jeff Singer
    17. February 2011 at 15:02

    Scott,

    Let me suggest you take a good long look at Mitch Daniels, as I don’t think Mr. Johnson has a snowball’s chance in hell of becoming the nominee.

    As for the Republicans and the budget — it is just false to say they oppose cuts in entitlements and the military. As I’m sure you know Paul Ryan has a serious proposal for addressing both Social Security and Medicare/Medicaid and Republicans have signed on to recent Pentagon cuts like the alternate engine for the F-35 fighter (and yes, many Republicans were reluctant to cut this program, which just goes to show we have work to do…but a victory is a victory and Republican votes are Republican votes)!

  11. Gravatar of StatsGuy StatsGuy
    17. February 2011 at 15:53

    Funny post.

    The funnier part is that much of the administrative “costs” by private firms are designed to protect the very revenue streams that the Federal government considers frauds. Some call those “costs” lobbying efforts, kickbacks, public relations campaigns, creative accounting, etc.

    The implicit assertion here is that IF the govt. were to achieve the same level of fraud as private insurers, it would have administrative costs higher. I rather doubt that – private companies spend relatively little of their general budgets on true fraud prevention, and much of that is really fraud perpetration (like denying genuine claims and paying legal fees to defend illegitimate denials). Then there’s advertising, customer acquisition, retention, analytics (trying to outpredict competitors by building statistical models to accurately predict who will not have claims), etc.

    You also presume that the “frauds” were things the previous administration opposed, and were perpetrated due to government incompetence. It’s neither government incompetence nor government inefficiency. It’s straight up government capture. Much fraud happened because the senior administration chose to let it happen (and this isn’t just a Dubya problem).

    Consider the SEC. Do you truly think the SEC is “underfunded”? Do you really think it’s so incompetent that it can’t prosecute even the simplest of cases?

    Really?

    http://www.rollingstone.com/politics/news/why-isnt-wall-street-in-jail-20110216?page=1

    That’s not incompetence, it’s raw capture. It even exceeds the stories of the Department of the Interior under Dubya (which took “good ole boy” networks to new depths).

    Of course, if you really believe Coase, then corruption can be a good thing, right? Perhaps, when you are feeling generous, you can write a post trying to answer the fundamental question in institutional political economy – where do high quality institutions come from and what sustains them?

    The one thing that troubles me about the high weight you put on the NGDP crisis (and Fed failure) is the low weight this places on the banking crisis, and by extension the importance of institutional integrity.

    Yet if one believes in the wisdom of the crowd, then by virtue of the fact you are so far on the AD side of explaning things, you are most certainly wrong.

  12. Gravatar of TNR Anoints the Next Ron Paul TNR Anoints the Next Ron Paul
    17. February 2011 at 16:26

    […] do you kids like this? Scott Sumner is touting Gary Johnson, and The New Republic says he is the next Ron Paul. If the article is […]

  13. Gravatar of Shane Shane
    17. February 2011 at 17:29

    Y’all are too clever by half. Have you, or anyone you know, ever made a medical decision on cost basis? No one ever does. So that means that in order for basic principles of efficiency to operate, MOFOs need to have an external restraint. Private sector medical care is possibly the purest form of socialism that ever existed.

  14. Gravatar of Dan Dan
    17. February 2011 at 17:43

    Did Ron Paul announce he wasn’t running this year? Or is Gary Johnson some how more electable in your mind even though he has a fraction of the following? Its funny that right after Ron Paul wins CPAC TNR starts looking for the next Ron Paul. I personally like Gary Johnson but I don’t see him going anywhere. The republican voters like their warmongers too much. We’ll get a choice between Obama and some typical neocon candidate. I’ll be staying home on election night unless the republican base shocks me and votes Ron Paul as their candidate.

  15. Gravatar of andrew andrew
    17. February 2011 at 18:08

    This is fantastic!

  16. Gravatar of Erik M. Erik M.
    17. February 2011 at 19:33

    It’s funny to give a large absolute number with the phrase “believed to cost” and say, hey, it’s a lot of money. What does it prove if you don’t say what fraction of total Medicare costs it represents, and how that compares to total private insurance fraud as a fraction of total private insurance costs?

    As I understand it, the greater administrative costs of private insurance companies aren’t just fraud prevention, but also include deciding whom to cover and (until recently, at least) ferreting out reasons to rescind policies after a claim.

  17. Gravatar of Rien Huizer Rien Huizer
    18. February 2011 at 00:02

    woupiestek,

    The Netherlands has one of the more effective drug policies in the world (Singapore, with diametrically opposed policies) is another. That is possible because a vast majority accepts that it is a health, and not a morality issue. (And Singapore’s model works because of its geography and its system of policing). Of course there are politicians that cater for the minority who disagree, and would ban marijuana whilst continuing to consume alcohol and tobacco (as well as addictive prescription drugs), but they do not get a lot of traction. It does not have anything to do with lack of resources for the police, just with different priorities. Given the fact that many cafe’s in Holland are de facto licensed (they should be formally and the stuff they sell should be taxed of course, just like methamphetamines etc) they have to buy it from someone. If that someone is part of a large and otherwise criminal organization, he could face prosecution. I am sure that many policemen in Holland find this difficult, but they serve the public.

  18. Gravatar of Rien Huizer Rien Huizer
    18. February 2011 at 00:25

    Scott,

    Maybe a national health system on the scale of the US would incur diseconomies of scale, maybe not. The various national health systems in Australia, Canade, UK and several European countries show that health care cost per capita in those countries (with often older populations who should actually cost more) are much lower and outcomes (lifespan, child mortality) generally better. That simplistic observation may of course mask a very complex reality.

    In principle these should be no difference in the unit cost levels of administrative services of gvt and private sector agencies, if things such as more generous public sector benefits (pensions, health care) are ignored for the public sector as well as a much higher cost of capital for the private sector. Why: public and private hire the same consultants, systems vendors and offices. The vendors own the technology, the administrators generally not. What can make a difference is the creation of rents (in the public case for staff) and in the private case for shareholders and managers (once the sector has consolidated into oligopolies. Given the size of the US, a NHS may have diseconomies of scale, but it should not be too hard to clone Australia or Canada into nine or ten regionally active health plan administrators. The trouble with the US is that it tends to do public sector AND private sector routine service provision badly.

  19. Gravatar of woupiestek woupiestek
    18. February 2011 at 01:36

    @Huizer

    The law is wrong and should be changed, but the “toleration policy” rewards law breakers and that is worse.

  20. Gravatar of Tim Worstall Tim Worstall
    18. February 2011 at 02:14

    There’s a very large part of this calculation that’s being left out.

    Private insurance company costs include the costs of collecting the money that makes the system work.

    Government insurance costs do not. Which means that we have to add in the costs of raising the tax money that pays for the government run system.

    Now, we could just look at the administrative costs of tax colletion: a couple of percent perhaps. But really, we should also add the deadweight costs of taxation. Yes, really, we should: for even B of Census agrees, when calculating the value of such things as Medicaid, that the value of what is received (Medicaid) is perceived to be, by the recipients, lower than hte cash cost of providing it.

    So, what’s the deadweight costs of taxation? 20% is a reasonable rule of thumb as the average cost, another estimate is 33% (one third) as the marginal deadweight cost of an extra dollar of taxation.

    Add either of those to Medicare or Medicaid adminstrative expenses and they don’t look so cheap, do they?

  21. Gravatar of Doc Merlin Doc Merlin
    18. February 2011 at 04:17

    @ Tim Worstall:

    Agreed!

  22. Gravatar of Rob in Toronto Rob in Toronto
    18. February 2011 at 05:23

    Another way of looking at health care costs, from the north.
    Canada’s health care system is run by the provincial and territorial governments, although the federal gov. does toss in money now and then. There are thirteen inlerlocking insurance plans for the 10 provinces and 3 territories.Only four of which have populations over 1.2 millon .Health Administration costs for the nine smaller entities cannot be excessive.They have other issues to deal with . Money for all is collected when you pay your provincial tax now mostly on line . Just push . You pay a health care surcharge depending on your tax bracket.In Ontario this is a max. of $ 900 per tax return.You can actually make a good estimate of what you pay for this universal health care insurance.For a family of four , adults working, its about 50% to 60% , lets say 60% ,of a 100% equivalent private insurance policy. I have checked this . That would be a private policy where there are no serious medical issues in the family. If there were medical issues your premium would soar and you may be denied coverage.Not all medical procedures are covered , and it varies from province to province, and there is some sort of logic to the composition of these matricies. Small things are not covered, like ,if you want a fibreglass cast ( coloured ) in lieu of an old fashion plaster cast, for your teenage son, you pay extra.If you want aluminum crutches in lieu of wood crutches suppled by the hospital you have to hobble over to the local drug store and buy your own. Are there inefficiencies? Yes . Just like any corporation where cultures work their way into the system and multiply. Designing , building and financing new hospitals is a very compliacted process and another prolem. Anyway,that’s enough for know.

  23. Gravatar of Tweets that mention TheMoneyIllusion » Paul Krugman is right — Topsy.com Tweets that mention TheMoneyIllusion » Paul Krugman is right -- Topsy.com
    18. February 2011 at 07:09

    […] This post was mentioned on Twitter by David McKibbin, Scrivener's Shared. Scrivener's Shared said: Paul Krugman is right http://j.mp/gBeR4U […]

  24. Gravatar of StatsGuy StatsGuy
    18. February 2011 at 07:57

    @ Tim Worstall

    Your comparison is quite unfair – ssumner is making a point about government ADMINISTRATION vs. private administration. The alternative to government administration is private oursourcing (e.g. privatized prisons which are funded with public tax dollars). In both cases, the deadweight loss is equal.

    Also, those estimates of deadweight loss use the current tax system, which is rather wretched. Singapore, by contrast, charges tens of thousands of dollars for a permit to drive a car for a few years. But to your credit, we’re unlikely to actually reform much due to a combination of broken political culture and corrupt institutions.

    However, if you want to start adding secondary effects such as deadweight loss due to public provision (which are quite large), you also need to add things like externalities from not providing those in poverty (and especially children of the poor) with basic health care (like vaccination, basic sick care, etc.). Having said that, most of medicare expenditures probably have little social productivity attached, but by that logic, many old people also have little social productivity attached, right? Heck, so do many unemployed.

  25. Gravatar of John Thacker John Thacker
    18. February 2011 at 09:29

    Haven’t been suckered by the GOP, simply aware that the Democrats are even worse. Congress tends to allocate the farm subsidies in multi-year farm bills– the last one was vetoed by GWB, and a third to a half of the Republicans voted against the bill (and to sustain the veto), but the rest of the Republicans and basically all the Democrats supported higher farm subsidies.

    Similarly, the GOP House is at least voting to cut defense spending by a little bit, more than the Democratic House voted for. President Obama is threatening a veto because the cuts in military spending will supposedly threaten our ability to “meet vital military requirements.”

    http://www.politico.com/news/stories/0211/49603.html

    The Republicans are certainly bad. But even on military spending (and certainly on farm subsidies), the Democrats are even worse. I’d love to see Gary Johnson win, though.

  26. Gravatar of jj jj
    18. February 2011 at 13:18

    Canada (Ontario)’s health care system is far worse than America’s for someone in the middle class (near median family income). I’ve had both; most recently spending 18 hours over 3 days waiting in Emergency, for something that should have been done in 3 hours. This was all dead time, sitting around waiting in a queue. If the value of patient time were then Canada’s system would lot more expensive; unfortunately by not counting patient time, the system looks a lot more efficient than it really is.

    Also, Medicare administrative costs should include those 700 law enforcement personnel.

  27. Gravatar of Scott Sumner Scott Sumner
    18. February 2011 at 18:57

    Bababooey, OK, you follow politics more closely than me, so I’ll defer to your hope.

    woupiestek, They should just make it legal to supply coffee houses. It’s better to not enforce the law than to enforce it. Some laws (like jaywalking when no cars are around) should not be enforced.

    Jeff Singer, I don’t think the Republicans want to reduce spending on the military, and I stand by that claim. I agree that some Republicans oppose some specific weapons systems that are not in their district. But the military is at least double what we need, and I’ve read the GOP doesn’t want to reduce it at all, but claim Obama is gutting it (even though he spends far too much.) I agree that Ryan is much better than most Republicans. But wasn’t he told not to talk about Social Security and Medicare in the SOTU reply? Yes, the GOP wants to reduce entitlements – – – for the poor.

    My head says you are right about Daniels, but my heart says Johnson.

    Statsguy, You said;

    “You also presume that the “frauds” were things the previous administration opposed, and were perpetrated due to government incompetence. It’s neither government incompetence nor government inefficiency. It’s straight up government capture. Much fraud happened because the senior administration chose to let it happen (and this isn’t just a Dubya problem).”

    Read my post again, I made no such presumption. I’ve consistently argued the GOP favors doctors and the medical industrial complex in general. I pointed out that Obama was better on this issue.

    Fraud isn’t the real issue, much of the non-fraud spending is complete waste. Indeed probably half of what I’ve spent on health care in my entire life is complete waste, and stuff the Canadian government never would have allowed. And I’m on private insurance. So I’m certainly no fan of the private insurance system.

    You said;

    “Consider the SEC. Do you truly think the SEC is “underfunded”? Do you really think it’s so incompetent that it can’t prosecute even the simplest of cases?”

    I don’t recall even mentioning the SEC, which I would abolish.

    I don’t know if it’s worth reading anything on economics from Rolling Stone, but didn’t Clinton let Enron get away with murder, and then Bush prosecuted.

    You said;

    “Of course, if you really believe Coase, then corruption can be a good thing, right? Perhaps, when you are feeling generous, you can write a post trying to answer the fundamental question in institutional political economy – where do high quality institutions come from and what sustains them?”

    I have no idea what you mean by “believe Coase?” Most people don’t understand the Coase Theorem, assuming it’s anti-regulation, which it isn’t.

    I have a 30 page paper on where good civic institutions come from, at SSRN, google it under the name “The Great Danes” (SSRN, not the blog post.) I’ll tell you where good institutions don’t come from, government trying to manage a country of 300,000,000 people.

    You said;

    “The one thing that troubles me about the high weight you put on the NGDP crisis (and Fed failure) is the low weight this places on the banking crisis, and by extension the importance of institutional integrity.”

    Then you haven’t been reading my blog. I argued government corruption is behind the F&F crisis, and the sub-prime mortgage crisis. Special interests led to the looting of the taxpayer.

    You said;

    “Yet if one believes in the wisdom of the crowd, then by virtue of the fact you are so far on the AD side of explaining things, you are most certainly wrong.”

    No, the crowd has no opinion on my views on AD, as they haven’t heard them and wouldn’t understand them if they did. Many people misinterpret the entire wisdom of crowd idea. It does not imply that a mob of 100 people are better informed on black holes than Steven Hawking. You should read the book entitled The Wisdom of Crowds, if you want to better understand what the term means, and more importantly what it doesn’t mean.

    The market crashed in late 2008 when the Fed blew it. The markets certainly understood the importance of allowing NGDP expectations to fall.

    Shane, You asked;

    “Y’all are too clever by half. Have you, or anyone you know, ever made a medical decision on cost basis?”

    Of course, I’d say close to half the medical services I have bought were partly motivated by cost-shifting.

    You said;

    “Private sector medical care is possibly the purest form of socialism that ever existed.”

    Not the purest, that was China’s Great Leap Forward, but damn close. I hate private medical insurance.

    Dan, Gary Johnson is much better than Ron Paul.

    Erik, You said;

    “As I understand it, the greater administrative costs of private insurance companies aren’t just fraud prevention, but also include deciding whom to cover and (until recently, at least) ferreting out reasons to rescind policies after a claim.”

    So what, I wasn’t defending private insurance. I don’t like private health insurance.

    Rien, You said;

    “Maybe a national health system on the scale of the US would incur diseconomies of scale, maybe not. The various national health systems in Australia, Canade, UK and several European countries show that health care cost per capita in those countries (with often older populations who should actually cost more) are much lower and outcomes (lifespan, child mortality) generally better.”

    How do you know that’s the outcome of the health care system, and not the diet? Denmark has the same life expectancy as the US, and is much lower than Greece. Are you claiming that shows Denmark’s health care system is much worse than Greece’s?

    But I think you misunderstood me. I’m not defending the US system (which I consider 80% socialist). Indeed it does cost more than other countries, and is highly wasteful.

    You said;

    “In principle these should be no difference in the unit cost levels of administrative services of gvt and private sector agencies”

    No, in principle (specifically the principle called agency theory) government administrative costs should be higher.

    Vermont is planning single payer, let’s see how that goes. I predict it will be much more efficient that similar plans implemented in LA or NYC.

    You said;

    “The trouble with the US is that it tends to do public sector AND private sector routine service provision badly.”

    No, it does private sector provision very efficiently (see Walmart) the so-called “private” health insurance companies are not really private at all, they are part private/part government organizations.

    Tim, Very good point, and at the margin the deadweight cost might be even higher.

    Rob, That sounds fairly efficient. But there is one big problem with the Canadian system. You must come to the US for certain procedures. We would lack a similar escape hatch. Canadians should be allowed to buy private health care with no restrictions, if they want to pay out of pocket.

    Statsguy, You said;

    “Your comparison is quite unfair – ssumner is making a point about government ADMINISTRATION vs. private administration. The alternative to government administration is private oursourcing (e.g. privatized prisons which are funded with public tax dollars). In both cases, the deadweight loss is equal.”

    No, it is you who are confused. He’s saying the money collection of private companies is counted as part of its administration, but not for the government.

    John, I’m very surprised by your claim on the military, I’d read exactly the opposite, that the GOP wanted more military spending than the Dems. If true, I’d be shocked, and I’d think American liberals would be outraged. Can you imagine the reaction of liberals if it came out that the GOP wanted to cut the military and the Dems were opposed? In fact, Bush raised military spending at an very fast rate.

    Large numbers of Dems want to pull out of Iraq and Afghanistan.

    jj, Both good points.

  28. Gravatar of StatsGuy StatsGuy
    18. February 2011 at 21:28

    ssumner:

    “I don’t know if it’s worth reading anything on economics from Rolling Stone.”

    Matt Taibbi probably has more influence on policy than the vast majority of elite economists. He’s not an elite model builder but he’s worth reading, even though he didn’t graduate from a top 10 econ dept.

    “Indeed probably half of what I’ve spent on health care in my entire life is complete waste”

    To quote John Wanamaker: ‘Half the money I spend on advertising is wasted; the trouble is I don’t know which half.’

    Re: Great Danes

    So cultural attitudes => institutions. Which begs the question, where do cultural attitudes come from, if not from social institutions? There’s a reason people like Avner Grief and Oliver Williamson and Elinor Ostrom spend a lifetime on this question.

    Re: Coase – we had that discussion, in which we all observed that what Coase says and what everyone remembers him saying aren’t exactly the same. But you are correct here, the Coase Theorem is not anti-regulation. It’s also not anti-Deregulation. In institutional design, one might call it the “Theory of Ultimate Ambivalence”.

    “I argued government corruption is behind the F&F crisis, and the sub-prime mortgage crisis.”

    If you mean this, https://www.themoneyillusion.com/?p=5949, it was one of your best posts. But it refers to corruption of incentives. Iceland created a system of corrupt incentives but not necessarily through a completely corrupt process. In the US, the process of creating regulation is itself corrupt – not merely the result of good intentions gone bad. That is the difference. So what sense is there saying “government is inherently inefficient”, and then point to government agencies that were designed by corrupt processes and precisely intended to be inefficient. It’s more accurate to say “corrupt governments are inherently inefficient”. That is true. It is also true that most governments are corrupt, as are most organizations in general (including private businesses).

    “I couldn’t believe that government bureaucrats could manage a giant health “insurance” company more efficiently than the private sector.”

    Sorry, I misinterpreted this to be a comment about the costs of administering a program, not funding it. But if we deduct cost of acquiring funds from insurance companies (marketing, sales), the remaining G&A expenses are still much higher than SS admin.

    The operative question really is this, then: “How much money would it take the agencies administering medicare to reduce fraud if they really wanted to and were not hamstrung by corrupt overseers?” We’ll never know the answer to that question by studying US political institutions. Because they are corrupt. By design.

    “Fraud isn’t the real issue, much of the non-fraud spending is complete waste.”

    Yes, I agreed – ‘Having said that, most of medicare expenditures probably have little social productivity attached, but by that logic, many old people also have little social productivity attached, right? Heck, so do many unemployed.’

    But the post was about the cost of fraud vs the cost of administration. The responses to Krugman (in the post and comments) are just as incomplete as Krugman’s initial assertion. And since sarcasm is the modus operandi in this post, I tried to fit in…

  29. Gravatar of johnleemk johnleemk
    19. February 2011 at 00:31

    Scott,

    Please do a post about healthcare some time — it’d be fascinating to hear more on why you think the US healthcare system is 80% socialist. I don’t know a heck of a lot about the issue, but from what I do know, it seems like “socialist” France and the Netherlands are actually more free market on healthcare than the US.

    Statsguy,

    I don’t know that I agree about Taibbi. I’ve read a bit of his stuff for Rolling Stone, and a lot of it seems overly sensationalist with some dubious empirics. Blaming Goldman Sachs for every economic crisis of the 20th century is a strong claim which demands strong evidence; after reading his piece on that, I decided it wasn’t really worth looking at his stuff again.

  30. Gravatar of Benjamin Benjamin
    19. February 2011 at 01:59

    I wonder how man people know the true extent of federal subsidies for rural America. You think the roads, water systems, power systems were paid for by rural residents? How about the telephones, and postal service? How about the placement of defense bases? Farm subsidies? Airports? Rail stops?

    Oddly enough, the urban blue states pay more to the federal government than they get back. We run red ink due to rural (largely Red) states.

    Without federal subsidy, rural America would blow away.

  31. Gravatar of steve steve
    19. February 2011 at 08:01

    Scott- You miss a couple of things on health care, but I would still like to see you write more on the topic. It is the most important part of our long term debt.

    First, the private insurers do not make a lot of data available, so we dont know their rate of fraud. Secondly, people always forget the other side of administrative costs. Medicare billing is easy and quick. They pay. Maybe to easily which leads to more fraud. OTOH, it is more difficult to bill for private insurance. They still reject clean claims. Lots of different forms. Occasional large errors due to the complexity. In my practice with my patient population fairly evenly divided between Medicare and private insurance, about 75% of my billing costs go to the private side.

    Steve

  32. Gravatar of StatsGuy StatsGuy
    19. February 2011 at 13:42

    @ johnleemk

    “I don’t know that I agree about Taibbi. I’ve read a bit of his stuff for Rolling Stone, and a lot of it seems overly sensationalist with some dubious empirics.”

    Upton Sinclair was also sensationalist. And worth reading.

  33. Gravatar of Scott Sumner Scott Sumner
    19. February 2011 at 15:27

    Statsguy, Taibbi is funny, I’ll grant you that.

    You said;

    “To quote John Wanamaker: ‘Half the money I spend on advertising is wasted; the trouble is I don’t know which half.'”

    I do know, in my case.

    You said;

    “So cultural attitudes => institutions. Which begs the question, where do cultural attitudes come from, if not from social institutions? There’s a reason people like Avner Grief and Oliver Williamson and Elinor Ostrom spend a lifetime on this question.”

    I agree.

    In general, I think government bureaucracies tend to be less efficient, even if designed in a non-corrupt fashion.

    Johnleemk, I’ve read that Netherlands doesn’t even have a Medicare program, but I don’t know enough to comment.

    As far as the 80% number–slightly more than half of health insurance is government supplied. The so-called private health companies are massively subsidized, which leads to much wasteful spending. They are also heavily regulated in how they do business, often they are forced to cover certain conditions, even if the customers don’t want those covered.

    Then there are also sorts of control on entry into the provision of health services, and also entry into the pharmaceutical market. The government is involved in all sorts of ways, almost always pushing up costs. It’s socialism for the producers, not the consumers.

    I agree about Goldman Sachs, they are the least of our problems. The main problems are F&F, and FDIC, and FHA, and the CRA, and the smaller banks. That’s where our tax money goes.

    Benjamin, I think most educated people know, but then then that’s about 1% of the population. Rural America wouldn’t blow away, food prices would rise until they could support themselves without subsidy.

    Steve, See my comments above, I am no fan of private health insurance.

  34. Gravatar of Doc Merlin Doc Merlin
    19. February 2011 at 19:38

    “Benjamin, I think most educated people know, but then then that’s about 1% of the population. Rural America wouldn’t blow away, food prices would rise until they could support themselves without subsidy.”

    Although, without crop subsidies, food prices would drop… so I am curious what side of the current equilibrium things would land on.

  35. Gravatar of Tim Worstall Tim Worstall
    20. February 2011 at 04:20

    “Matt Taibbi probably has more influence on policy than the vast majority of elite economists. He’s not an elite model builder but he’s worth reading, even though he didn’t graduate from a top 10 econ dept.”

    I’m afraid I cannot stand reading Taibbi on economics: I found him much more fun back in the days in Russia when he was writing about coke and whores in Russian nightclubs. His comments certainly accorded with reality rather more accurately then.

    (Fun fact, I once tried to be the business correspondent for the paper he and Mark Ames ran then.)

    “To quote John Wanamaker: ‘Half the money I spend on advertising is wasted; the trouble is I don’t know which half.'”

    Originally Lord Lever.

  36. Gravatar of Scott Sumner Scott Sumner
    20. February 2011 at 09:12

    Doc Merlin, Some subsidies raise prices, others lower them.

    Tim, Yes, I think I recall reading some of that stuff on the Wild Wild east.

  37. Gravatar of Une vie digne « Frapper monnaie Une vie digne « Frapper monnaie
    19. July 2012 at 12:41

    […] aux idées reçues, en la matière, il n’y a pas de vérité clairement définies, et l’administration publique peut gérer l’assurance santé ou le service postal à moindre…. Bien sûr, on peut trouver des contre-exemples, mais la vérité est tout simplement que la saine […]

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